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A key report that reflects the strength of the housing market is the monthly Housing Starts report released jointly by the U.S. Census Bureau, U.S. Department of Commerce and U.S. Department of Housing & Urban Development. The Housing Starts report includes two pieces of data: starts and permits. A housing start is counted when construction begins on a new single or multifamily property. A permit is counted when a permit is issued by a local government to a property owner or builder to begin construction on a new single or multifamily property. Because construction typically begins soon after a new permit is issued, housing starts and permits are typically highly correlated.
The Housing Starts report issued in January 2015 showed steady results for December 2014 after a relatively positive report for November. The December report showed that housing starts increased 5.3% on an annual basis to approximately 1,089,000 units while permits increased 1.0% to 1,032,000. Housing starts exceeded analyst expectations while the permit figure came in below analyst expectations. The increase in housing starts was driven by the single family segment which had lagged the multifamily segment for the past several months. Single family permits increased 4.5% as compared to an 11.8% decline for multifamily permits. The single family segment of the housing market is larger than the multifamily segment so the improvement in that component of the housing market is a positive. The Housing Starts report tends to fluctuate significantly on a monthly basis but overall activity remains relatively steady. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The most recent housing starts report suggests that housing supply will remain relatively steady as home builders on a nationwide basis remain active but not overly aggressive in new construction. The shift toward single family housing is an interesting development and suggests that home buyers could have more single family home options in the future. As opposed to condominiums or multi-family properties, single family homes typically do not require the owner to pay a monthly homeowners association fee (HOA fee) or co-op fee which results in lower total monthly housing expense for the borrower and potentially makes single family properties more affordable.
It is important to highlight that the housing starts report addresses the new home market as opposed to the larger existing home market. Use the FREEandCLEAR Mortgage Qualification Calculator to determine what price home you can afford based on your monthly income and debt and other factors including if the property requires HOA fees. Additionally, interest rates continue to be very attractive to mortgage borrowers so use the INTEREST RATES feature on FREEandCLEAR to monitor rates for lenders in your area.
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